Most reports from Sixth District business contacts continued to be upbeat in late January and February. Retailers posted strong results and auto sales improved. Reports from the tourism sector continued to be positive. Most industrial contacts reported an increase in activity, although weakness was cited for textiles and some auto producers. Real estate contacts noted further slowing in several housing markets, while new nonresidential development remained modest. Labor markets were described as firm in most areas, and shortages in several sectors were noted. Energy-related costs remained elevated, and construction industry contacts noted concern about rising labor and material costs. Non-energy consumer price increases remained moderate.

Consumer Spending
Merchants reported strong sales since the last report. Many contacts suggested that sales during late January and February benefited from the redemption of holiday gift cards. Rebuilding and replacement of lost and damaged items continued to boost sales near hurricane-damaged areas. Several retailers in hard-hit zones have reopened, and smaller specialty shops in New Orleans reported better-than-expected sales. Going forward, District retailers anticipate modest sales growth over the next several months.

Auto sales improved slightly in late January and February. Strong demand for imports and U.S.-assembled foreign models continued to offset disappointing sales of domestic-branded vehicles. However, contacts noted that domestic vehicle sales received a boost from commercial fleet sales. Import dealers reported healthy activity in February, although demand for trucks and some SUV segments remained sluggish.

Real Estate
Residential real estate activity continued to slow in late January and February, but still remained at high levels. Reports from Realtors noted a deceleration in both new and existing home sales, while most homebuilders reported that new home construction was similar to year-ago levels. Condominium development showed signs of weakening as several developers put projects on hold because of soft pre-sales or escalating construction costs. Commercial development remained at modest levels, but most contacts reported improving conditions and steady absorption rates. Redevelopment in Hurricane Katrina-affected areas continued to be dominated by cleanup and debris removal.

Manufacturing and Transportation
Manufacturing activity picked up in late January and February for most sectors, although weakness remained for textiles and domestic-branded auto producers. Defense, building products, and transportation equipment producers reported stronger activity. Some aerospace and shipbuilding firms received new contracts, and several forest product producers and saw mills were said to be operating at capacity. A manufacturer of steel door and window frame units for commercial buildings reported backlogs of municipal/governmental type projects. A tractor-trailer manufacturer has increased the pace of hiring at a new plant to meet increased demand. On the downside, two large textile mills announced layoffs. Both companies indicated the decision to cut payrolls was a result of rising import competition and slow sales. Auto-related suppliers of U.S.-branded vehicle assembly plants noted slower demand.

According to most manufacturing contacts, near-term capital investment plans were modest. Several noted that they had recently completed expansions or capital improvements. The owner of a rock and gravel company, however, reported preparations for a large capital expansion, and a steel manufacturer reported capital spending plans related to efforts to improve productivity.

Freight demand remained strong in late January and February. Contacts noted improved business conditions and tight capacity in rail and truck transportation. Despite last year's storm-related disruptions and higher diesel costs, one major regional rail company reported improved revenues.

Tourism and Business Travel
Reports from the tourism and hospitality industry remained positive in late January and February. South Florida contacts in the restaurant and hotel businesses indicated strong hiring during the winter vacation season. Florida's theme parks reported robust attendance, and the state's Gulf Coast was reportedly experiencing strong convention activity. New Orleans is slowly re-establishing its tourism industry. The city held a scaled Mardi Gras and Harrah's Casino and part of the Ernest N. Morial Convention Center were reopened. Three reopened casinos in Biloxi have reported better-than-expected gaming revenues in their first full month of operations.

Banking and Finance
Financial conditions in the District remained stable and delinquencies remained near historical lows through February. Deposits were strong in the Katrina-impacted areas. However, some reports noted increased competition for deposits. There were additional reports of slowing in residential mortgage loan applications.

Employment and Prices
Most reports indicated continuing tight labor markets. Labor shortages in the construction industry were noted, especially in coastal areas. The dearth of housing and office space is expected to continue to limit available labor in the New Orleans market. In most areas of Florida there is strong labor demand for the construction, hospitality, and healthcare sectors. Many contacts expressed concern about the skill level of new hires. A shortage of truck drivers was also widely cited.

Most businesses continued to report that competitive pressures were limiting their ability to pass through input cost increases to customers. In Florida, contacts noted that commercial construction costs were going up so much some projects were put on hold. Louisiana and Mississippi officials are concerned about funding major rebuilding projects in light of rising labor and material costs. Concrete, glass, and sheetrock price increases were reportedly driving up building costs. Energy-related costs remained elevated and prices for products made with petroleum derivatives were expected to remain high. Contacts feel that uncertainty and volatility in energy markets mean that energy-related surcharges are likely to stay in place into the indefinite future.

Natural Resources and Agriculture
Recent weather conditions were favorable for most District crops in late January and February. Regional prices moved higher for cotton, oranges, and sugar, whereas poultry prices declined.